In february, wally wade, owner of bama fan supplies, inc., must place an order with nike for the new alabama football shirts for the coming season. the long lead time is required for the contract manufacturers in asia to order the necessary materials and to begin production in april. the shirts will be delivered to wally in early-august just in time for the new season. nike will charge wally $50 for each shirt he orders, and he will sell each shirt for $75 during the season. there will not be another opportunity for wally to order any more shirts if he runs out. at the end of the season wally will sell all the shirts that are left at a price of $15. obviously, wally doesn’t know exactly what the demand for these shirts will be, but during the past couple of years he has sold an average of 500 shirts each season

Problem 9-5. net present value and taxes [lo 1, 2] penguin productions is evaluating a film project. the president of penguin estimates that the film will cost $20,000,000 to produce. in its first year, the film is expected to generate $16,500,000 in net revenue, after which the film will be released to video. video is expected to generate $10,000,000 in net revenue in its first year, $2,500,000 in its second year, and $1,000,000 in its third year. for tax purposes, amortization of the cost of the film will be $12,000,000 in year 1 and $8,000,000 in year 2. the company’s tax rate is 35 percent, and the company requires a 12 percent rate of return on its films. required what is the net present value of the film project? to simplify, assume that all outlays to produce the film occur at time 0. should the company produce the film?